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WASHINGTON – March 13, 2017 – Riskier borrowers are making up a growing share of new mortgages, pushing up delinquencies modestly and raising concerns about an eventual spike in defaults that could slow or derail the housing recovery.

The trend is centered around home loans guaranteed by the Federal Housing Administration (FHA) that typically require downpayments of just 3 percent to 5 percent and are often snapped up by first-time buyers. The FHA-backed loans are increasingly being offered by non-bank lenders with more lenient credit standards than banks.

The landscape is nothing like it was in the mid-2000s when subprime mortgages were approved without verifying buyers’ income or assets, sparking a housing bubble and then a crash. Still, for some analysts, the latest development is at least faintly reminiscent of the run-up to that crisis.

“We have a situation where home prices are high relative to average hourly earnings and we’re pushing 5 percent-down mortgages, and that’s a bad idea,” says Hans Nordby, chief economist of real estate research firm CoStar.

The share of FHA mortgage payments that were 30 to 59 days past due averaged 2.19 percent in the fourth quarter, up from about 2.07 percent the previous quarter and 2.13 percent a year earlier, according to research firm CoreLogic and FHA. That’s still down from 3.77 percent in early 2009, but it represents a noticeable uptick.

While that could simply represent monthly volatility, “the risk is that the performance will continue to deteriorate, and then you get foreclosures that put downward pressure on home prices,” says Sam Khater, CoreLogic’s deputy chief economist. Such a scenario likely would take a few years to play out.

The early signs of some minor turbulence in the mortgage market add to concerns generated by recent increases in delinquent subprime auto loans, personal loans and credit card debt as lenders target lower-income borrowers to grow revenue in the latter stages of the recovery.

FHA mortgages generally are granted to low- and moderate-income households who can’t afford a typical downpayment of about 20 percent. In exchange for shelling out as little as 3 percent, FHA buyers pay an upfront insurance premium equal to 1.75 percent of the loan and 0.85 percent annually.

FHA loans made up 22 percent of all mortgages for single-family home purchases in fiscal 2016, up from 17.8 percent in fiscal 2014 but below the 34.5 percent peak in 2010, FHA figures show. The share has climbed largely because of a reduction in the insurance premium and home price appreciation that has made larger downpayments less feasible for some, says Matthew Mish, executive director of global credit strategy for UBS. House prices have been increasing about 5 percent a year since 2014.

At the same time, the nation’s biggest banks, burned by the housing crisis and resulting regulatory scrutiny, largely have pulled out of the FHA market as the costs and risks to serve it grew. Non-bank lenders, which face less regulation from government agencies such as the FDIC, have filled the void.

Non-banks, including Quicken Loans and Freedom Mortgage, comprised 93 percent of FHA loan volume last year, up from 40 percent in 2009, according to Inside Mortgage Finance. Meanwhile, the average credit score of an FHA borrower has fallen modestly since 2013. Mish says non-banks generally have looser credit requirements, and lenders have further eased standards – such as the size of a monthly mortgage payment relative to income – as median U.S. wages stagnated even as home values marched higher.

Here’s the worry: If home prices peak and then dip, homeowners who put down just 5 percent and are less creditworthy than their predecessors and will owe more on their mortgages than their homes are worth. That would increase their incentive to default, especially if they have to move for a job or face an extraordinary expense, Khater says. Foreclosures would trigger price declines that ignite more defaults in a downward spiral.

In turn, funding for the non-bank lenders from banks and hedge funds likely would dry up, and FHA loans would be harder to get, dampening housing.

“The non-banks (bring) a welcome change,” he says. They must meet FHA standards, he says, and are overseen by the Consumer Financial Protection Bureau.

Bill Emerson, vice chairman of Quicken Loans, the top non-bank lender, says the credit standards of his firm and his peers are stringent by historical standards and seem looser only because banks tightened requirements after the housing crash.

WASHINGTON – Nov. 11, 2015 – The Federal Housing Finance Agency (FHFA) announced an expansion of the Neighborhood Stabilization Initiative (NSI) to 18 additional metropolitan areas around the country, including four in Florida: South Florida, the Orlando area, the Tampa area and Jacksonville.
Effective Dec. 1, local community organizations in the metro areas will be able to buy foreclosed properties owned by Fannie Mae or Freddie Mac before the general public has a chance.
FHFA, Fannie Mae and Freddie Mac jointly developed NSI through a partnership with Fannie Mae and Freddie Mac and the National Community Stabilization Trust (NCST). The pilot program launched initially in Detroit and was later extended to the Chicago metro area.
“The number of REO properties that Fannie Mae and Freddie Mac hold continues to decline nationwide, but there are still some communities in which the number of REO properties remains elevated,” says FHFA Director Melvin L. Watt. “Our goal is to take what we learned in Detroit and Chicago and apply it to these additional communities as quickly and efficiently as possible.”
Watt says “giving local community buyers an exclusive opportunity to purchase these properties at a discount, taking into account expenses saved through a quicker sale, is an effective way to give control back to local communities and residents who have a vested interest in stabilizing their neighborhoods.”
The 18 metropolitan areas designated for NSI expansion include:
Akron, Ohio

WASHINGTON – Oct. 22, 2015 – Fannie Mae is enhancing its automated underwriting system to improve the analysis of credit histories and the use of nontraditional credit.
Loans underwritten on Desktop Underwriter (DU) will require the utilization of trended credit data provided by Equifax and TransUnion.
According to the secondary lender, by using trended data, a more intelligent and thorough analysis of the borrower’s credit history will be enabled.
Fannie announced the planned update on Monday.
The Washington-based company explained that credit reports currently used in mortgage lending only indicate the outstanding balance and whether a borrower has been on time or delinquent in paying existing accounts like credit cards, mortgages or student loans.
But trended data will indicate monthly payments made over time – enabling lenders to determine if revolving credit lines are paid off each month or if a balance is carried from month-to-month while making minimum or other payments.

Trended data requirements will be implemented around the middle of next year, while more details will be provided in the coming months.

DU is also being enhanced to more efficiently address borrowers without a traditional credit history. More information will be available in the coming months, and the functionality is expected to go live sometime next year.

One other change outlined in the announcement is the integration of The Work Number from Equifax into DU. As a result of the enhancement, which will also happen sometime next year, lenders won’t have to provide copies of pay stubs or other documents to verify income.

“In addition to efficiency for borrowers and lenders, this could reduce the frequency of mortgage fraud,” the notice said. “Going forward, Fannie Mae will determine if validation services can be offered for additional borrower data, such as bank statements, and additional income documents, such as tax returns.”

WASHINGTON (AP) – Oct. 20, 2015 – Construction companies built more apartment complexes in September, sparking a temporary rise in housing starts for a real estate market that otherwise appears to have crested during the summer.
Housing starts last month rose 6.5 percent to a seasonally adjusted annual rate of 1.21 million homes, the Commerce Department said Tuesday. But a 17 percent surge in multi-family housing – which includes apartments – accounts for almost all of that increase.
New construction and sales of existing homes surged in the first half of the year as more Americans found work and the unemployment rate dipped to a solid 5.1 percent. But tight inventories, rising prices and the absence of meaningful wage growth have capped growth as affordability has become an issue – a problem that new construction can help resolve.
“Builders are stepping up to meet that demand but doing so cautiously,” said Stephen Stanley, chief economist at Amherst Pierpont Securities. “So, for beleaguered buyers who can’t find what they are looking for because of a dearth of listings, there is a bit of help on the way.”
Construction rose last month in the Northeast, South and West, while falling in the Midwest.
Housing starts have soared 12 percent in the first nine months of 2015. But the pace of building retreated from its June apex, in part due to the expiration of tax incentives for developers in New York.
Approved permits fell 5 percent in September to an annual rate of 1.1 million, a sign that construction will likely slow in the coming months.
Sales of existing homes similarly accelerated through the start of the summer, only to decline in August. The tight inventories – just 5.2 months’ supply of homes were listed for sale – have propped up prices, as the median cost to buy a home increased 4.7 percent over the year to $228,700, according to the National Association of Realtors.
A greater share of the country is also choosing to rent. The percentage of Americans owning homes has dipped to 63.4 percent, the lowest level in 48 years. The influx of millennials and downsizing baby boomers into the rental market has caused monthly leases to jump 3.8 percent over the past year, according to the real estate firm Zillow.
But price appreciation has also slowed as many Americans lack the income to spend more on housing. Average hourly earnings have increased just 2.2 percent to $25.09, meaning that home values and rental costs are rising at roughly double the rate of incomes.

There are signs that more Americans are renovating their homes instead of buying new properties. A new index compiled by BuildZoom – which identifies contractors for projects – found that renovations are running 2.8 percent above their 2005 level. Meanwhile, despite the gains of the past year, new home construction remains 57 percent below its 2005 level during the housing bubble.

Still, remodeling activity has been flat during the past year as new home construction has advanced. The gains have left construction firms more optimistic.

The National Association of Home Builders/Wells Fargo builder sentiment index released Monday rose this month to 64. The last time the reading was higher was October 2005 at 68.

Readings above 50 indicate more builders view sales conditions as good rather than poor. The index has been consistently above 50 since July last year.

NEW YORK – Aug. 5, 2015 – What building materials are trending in new-home construction? The latest Annual Builder Practices Survey, conducted by Home Innovation, reveals what buyers can expect to see in the new-home market.

1. Garages: The garage door is getting more enhancements, including windows, insulated doors, and doors made of composite or plastic materials. In 2014, 32 percent of all new single-family homes had bays for three or more cars – the most ever recorded in this study’s history.

2. Flooring: Carpeting continues to be the most popular flooring option for new construction, included in about 83 percent of all new-home bedroom installations. However, only about 40 percent of living rooms now have carpet. Hardwood flooring – both solid and engineered– is the second most popular type of flooring included in 27 percent of all new-home installations. Ceramic tile (which appears in 72 percent of all bathroom floor installation) follows in third place, making up 20 percent of all new-home floor installations.

3. Countertops: For kitchen countertops, granite continues to reign in two out of three homes (64 percent of new-home installations). Quartz/engineered stone is gaining popularity while laminate, solid surfacing and ceramic tile are losing appeal.

4. Appliances: Cooktops and wall oven combinations are gaining in popularity and make up about 24 percent of the market, compared to freestanding ovens (45 percent). Freezer-on-bottom refrigerators are gaining in popularity at 19 percent, while side-by-side has fallen to 28 percent of the share.

5. Kitchen sinks: More buyers are paying attention to their kitchen sink, with the single basin kitchen sink making a comeback, growing from 5 percent to 20 percent of all new single-family homes in the past decade. Also growing in popularity are granite/stone kitchen sinks (at 8 percent). One-piece cultured marble lavatories are continuing to decline in demand.

IRVINE, Calif. — July 30, 2015 — RealtyTrac released its second quarter (Q2) 2015 U.S. Home Equity & Underwater Report, which listed four Florida cities at the top of the list for homes seriously underwater – properties where the homeowners owe at least 25 percent more than the home’s current market worth.

In addition, RealtyTrac looked at underwater homes that are also in the foreclosure process.

In the same Florida cities, over half of the homeowners going through foreclosure were seriously underwater:Lakeland (54.8 percent of foreclosures seriously underwater), Tampa (51.7 percent), Palm Bay (51.5 percent) and Orlando (51.2 percent).

Statewide, 23.6 percent Florida of homeowners with a mortgage were seriously underwater in the Q2 2015 – a drop from 23.8 percent in the first quarter and 30.3 percent year-to-year.

On the flipside, RealtyTrac found that 17.6 percent of Florida owners with a mortgage were “equity rich” with at least 50 percent equity. That’s a slight drop for the first quarter’s 17.8 percent but an increase from 15.9 percent year-to-year.

Looking only at homes in foreclosure, 62.8 percent in Florida were seriously underwater, while 18.6 percent, even though going through foreclosure, were equity rich.

“Strong South Florida price increases over the past few years have moved many homeowners from negative to positive equity. We would encourage the remaining distressed homeowners to ask for a Broker Price Opinion (BPO) regarding the value of their property – many may be surprised at their improving value,” says Mike Pappas, CEO and president of Keyes Company in South Florida.

National numbers

Nationwide, 13.3 percent of all properties with a mortgage were seriously underwater in Q2, an increase from 13.2 percent of all homes in the first quarter. However, they dropped from 17.2 percent year-to-year. At the peak of the foreclosure crisis in 2012, the percentage was 28.6 percent.

“Slowing home price appreciation in 2015 has resulted in the share of seriously underwater properties plateauing at about 13 percent of all properties with a mortgage,” says Daren Blomquist, vice president at RealtyTrac.

“However, the share of homeowners with the double-whammy of seriously underwater properties also in foreclosure is continuing to decrease and is now at the lowest level we’ve seen since we began tracking that metric in the first quarter of 2012,” he adds.